Taxation is a consideration of all investment strategies; profit from owning stocks, including dividends received, is subject to different tax rates depending on the type of security and the holding period. Most profit from stock investing is taxed via a capital gains tax. In many countries, the corporations pay taxes to the government and the shareholders once again pay taxes when they profit from owning the stock, known as "double taxation".

Understanding the tax structure in financial markets is critical for investors, as it directly impacts returns. Below is a concise comparison of how taxation works in the US, European markets, and India.

1. United States—Market-Based, Progressive System

• Capital Gains Tax:

  • Short-term (<1 year): Taxed as ordinary income (up to 37%).

  • Long-term (>1 year): Preferential rates (0%, 15%, or 20%) depending on income.

• Dividend Tax:

  • Qualified dividends: Taxed at the capital gains rate.

  • Non-qualified dividends: Taxed as ordinary income.

• Financial Transaction Tax (FTT):

  • No federal FTT, though some proposals exist.

• Retirement Accounts (IRA/401(k)):

  • Tax advantages apply; they are deferred or exempt depending on account type.

2. European Union—Varies by Country, Generally High Tax Burden

• Germany Example:

  • Flat 25% capital gains and dividend tax (+5.5% solidarity surcharge).

  • Losses can be offset but subject to restrictions.

• France Example:

  • Flat 30% tax on capital gains and investment income (12.8% income tax + 17.2% social charges).

  • Wealth tax applicable on financial assets above a certain threshold.

• UK (Brexit):

  • £6,000 capital gains tax-free allowance.

  • Gains beyond that taxed at 10% or 20% depending on income.

3. India – Structured Yet Evolving

• Capital Gains Tax:

  • Equity (Listed):

    • STCG (<1 year): 15%.

    • LTCG (>1 year): 10% above ₹1 lakh, without indexation.

  • Debt Instruments:

    • STCG: As per income slab.

    • LTCG: 20% with indexation.

• Dividend Tax:

  • Taxed in the hands of investors as per income slab.

• Securities Transaction Tax (STT):

  • Levied on purchase/sale of securities. Rates vary (e.g., 0.1% on delivery-based equity).

• Other Levies:

  • GST on brokerage and charges applies.